Chapter 7

I. Multiple choice

1. The least important element in the evaluation of a CPA firm’s system of quality controls
would concern its policies and procedures with respect to?
A. Employment (hiring).
B. Confidentiality of audit engagements.
C. Assigning personnel to audit engagements.
D. Determination of audit fees.

2. A basic objective of a CPA firm is to provide professional services that confirm with
professional standards. Reasonable assurance of achieving this basic objective is
provided through?
A. Compliance with GAAS
B. A system of quality control.
C. A system of peer review.
D. Continuing professional education.

3. The accounting firm should establish policies and procedures assigned to promote an
internal culture based on the recognition that quality is essential in performing
engagements. This may be communicated through the following except
A. Training seminars.
B. Formal and informal dialogue.
C. Publication in PICPA newsletter.
D. Mission statements.

4. Which of the following is not an element of quality control that should be considered by
a firm of independent auditors?
A. Assigning personal to engagements.
B. Consultation with appropriate persons.
C. Keeping records of quality control policies and procedures.
D. Supervision.

5. In pursuing its quality control objectives, a CPA firm may maintain records indicating
which of its partners or employees were previously employed by its clients. Which
quality control elements would this be most likely to satisfy?
A. Leadership responsibilities for quality within the firm.
B. Human resources.
C. Ethical requirements.
D. Engagement performance.
6. Which of the following does a firm need not establish and maintain a system of quality
control for?
A. Leadership responsibilities for quality within the firm.
B. Relevant ethical requirements.
C. Maximizing revenue.
D. Engagement performance.

II. True or false

7. Projection refers as to an approximation of the amount of an item in the absence of a

precise means of measurement?
A. True.
B. False. Accounting estimate.

8. Quality control for a CPA firm, as referred to in auditing standards, applies to auditing
and tax services?
A. True.
B. False. Auditing and accounting and review services.

9. The primary purpose of establishing quality control policies and procedures for deciding
whether to accept a new client is to Minimize the likelihood of association with clients
whose management lacks integrity.
A. True.
B. False.

10. In pursuing its quality control objectives with respect acceptance of a client, a CPA firm
is not likely to make inquiries of previous auditors.
A. True.
B. False. Review the personnel practices of the proposed client.